Fertiliser subsidy bill to swell by Rs 2,600 cr

The government’s fertiliser subsidy bill for the year is expected to expand by an additional Rs 2,600 crore, following an increase in the administered prices of natural gas.

The impact of the increase would be two-pronged. First, it would translate into more subsidies by the government to the fertiliser sector for gas-based units. Second, producing fertilisers over and above the capacity would become unviable, according to the Fertiliser Association of India (FAI).

“Currently, production of urea has reached 100 per cent capacity at 200 million tonnes (mt) and the rest is imported. But, of late, the government had been telling the industry to reduce dependence on imports and produce an extra 2 mt, which will obviously not be a good proposition. This would mean the subsidy burden on the government is going to increase by Rs 2,600-2,800 crore,” FAI director-general Satish Chander told Business Standard.

On Wednesday, the government had raised the administered prices of natural gas produced by ONGC and Oil India to $4.20 per unit. However, there would not be much impact of this increase on the companies, as their input cost would be subsidised by the government in accordance with the provision in the gas pricing policy.

“Whatever gas price is there, it would be taken care of through the subsidies. The industry will, thus, remain insulated,” said K C Singh, director (technical), Iffco, the country’s largest fertliser producer.

A spokeswoman of DCM Shriram Consolidated Ltd said the company would not be impacted, as it was already buying the gas at $4.20 per unit from Reliance Industries’ KG basin and not at a concessional rate.